THE BIG SECRET
Are you tired of running out of money before the month ends? Or before the week ends for that matter? In order to stop this vicious cycle of living paycheck to paycheck, you need to develop a plan for your money. This plan involves doing a WRITTEN budget, on paper, on purpose, before the month begins. There’s something powerful about actually writing down your plan. If you’re one of those people who say “I do my budget in my head,” I can tell without a doubt that you have no clue where your money is going.
Many people fear the dreaded “B” word. How would you describe the word “BUDGET?” Restrictive? Time-consuming? Difficult? Boring? A waste of time? Well I’m here to debunk those myths. What if I told you a budget is actually freeing because it gives you PERMISSION to spend? You also don’t need to be a rocket scientist…we’re talking about fifth grade math!
The BIG SECRET to building wealth is that THERE REALLY IS NO SECRET. Live on less than you make. Develop a budget and stick to it. Become and stay debt-free. Save for your future. Give generously. I know, this is common-sense. We all know what we NEED to do, the hard part is actually DOING IT! That’s where the zero-based budget comes in to help save the day.
5 STEPS TO CREATE YOUR ZERO-BASED BUDGET
Before the month begins, create your zero-based budget using the 5 simple steps below:
- List your income at the top of a page (or use Excel if you’re a nerd like me). This should be your take-home pay (after taxes).
- List all of the expense categories that are unique to that month (i.e. Christmas is in December).
- Next to each expense category, write the amount you plan to spend. This will be an estimate for some items like utilities and more exact for categories like rent.
- Subtract the expense amounts from your income. Income minus outgo equals zero. This is where the zero-based budget gets its name. If you have any money left over, you need to allocate it to a category. This step is crucial to the plan since you will be telling every single dollar where to go.
- STICK TO THE PLAN!!! Spending the time to plan out your monthly budget is pointless if you don’t follow it.
Of course, if you get to Step 4 and realize you are negative, you need to find expense categories to cut or make some extra income. Get a part-time job or work overtime at your current job. Maybe you need to sell some things you don’t need. Have a garage sale. Sell stuff on eBay and Craigslist.
I like to take it one step further and list my income per week so that I can accurately match when the expenses will be deducted. For example, rent is due on the first of the month, so you’ll need to plan for those funds to come out of your last paycheck in the month before. Another tip to help budget for large purchases is to divide the total cost into monthly amounts. Christmas always happens in December so this shouldn’t be a big surprise. If you plan to spend $1,200 on Christmas gifts, set aside $100 each month so that when December comes around you’ll already have enough saved.
Major expense categories that we all have trouble with are eating out, groceries, and clothing. Brown-bag it to work. Staying out of restaurants can save you hundreds a year! To save on groceries, cut coupons, shop sales, and buy generic items. Trust me, your clothing budget won’t suffer if you don’t buy new clothes every month.
It usually takes a few months to get the hang of the zero-based budget. The sooner you become friends with the zero-based budget, the sooner you’ll get control of your monthly income and finally start to make progress financially!
The coolest thing about all of this is that you can simply decide to make your budget today. It’s really not hard. Are you ready to start living your life on purpose? Try it out and I bet you’ll feel like you got a raise once you see where all your money is actually going!